Central Bank authorizes unsecured loans at interest rate of 16pc


Banks will be allowed to charge up to 16% for lending money if borrowers promise other forms of collateral or are unable to provide collateral.

The collateral listed by the CBM is land and buildings, gold, diamonds and precious stones, cash certificates, treasury bills, term deposits, credit certifications and credit guarantees. .

The new maximum interest rate of 16pc is all inclusive of other charges such as management fees and applies to both installments and one-off repayments. Interest rates above 16pc are not allowed.

The central bank rate will remain unchanged at 10pc, while the maximum lending rate for loans based on guarantees specified by the CBM will remain at 13pc. The minimum deposit rate will also remain at 8pc.

The move comes after CBM Deputy Governor U Soe Thein hinted at liberalizing interest rates during the signing ceremony to establish Myanmar’s first credit bureau in December 2018.

Liberalization will result in greater flexibility for small and medium-sized enterprises (SMEs) that are unable to comply with the BCM guarantee requirements to qualify for loans. Meanwhile, local banks will also have the option of granting riskier loans in exchange for a higher interest rate.

“Although banks want to support SMEs, there is more risk due to the lack of collateral. Now banks can charge more for loans to riskier borrowers. Although the maximum interest rate is 16pc, banks can offer a spread between 13pc and 16pc. This will remain cheaper than external loans and represents a new type of lending for SMEs, “said Dr Aung Thein, secretary of the Union of Myanmar Federation of Chambers of Commerce and Industry.

Currently, local banks offer several types of SME loans other than the standard loan. The interest rates are 8.5% per annum for the Japan International Cooperation Agency and the two-stage loan from KfW, 9% per annum for loans from the state-owned Myanma Economic Bank, 14% per annum for overdrafts and 2 to 3% interest rate for loans backed by a credit guarantee. Assurance.

Meanwhile, non-bank institutions offer interest rates between 24% and 36% per annum for unsecured loans.

The move to make lending and borrowing more flexible for banks and businesses comes after a series of developments aimed at opening up Myanmar’s capital market.

After six years, foreign insurers got the green light on January 1 to operate in Myanmar. According to the Ministry of Planning and Finance, foreign companies wishing to “carry out insurance activities, underwriting agency or insurance brokerage with foreign investments” are now allowed to open their doors in the country.

Under notification 6/2018, issued on November 8, 2018, foreign banks are now also able to lend to domestic companies in local currency at the standard lending rate of 13pc. Foreign banks are free to set their own interest rates if the loans are in foreign currency. They will also be allowed to provide the full range of trade finance services and grow, the CBM said.

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